"The Indian Government has clearly expressed that it will not allow the Karmapa to engage in any anti-Chinese activities, nor will it allow any foreign force to use him to engage in such activities," the Chinese Foreign Ministry said in a statement.
India announced last week that it would allow the 17th Karmapa Lama to stay in India, more than a year after he made a dramatic escape from his homeland.
The teenage Karmapa ranks third in the Tibetan Buddhism hierarchy behind the Dalai Lama and the Panchen Lama.
Since his flight he has been living in a monastery near the hill town of Dharamsala which is the headquarters of the Dalai Lama's government-in-exile.
Beijing expressed the hope that India would handle the situation "prudently and appropriately" in the interests of "the overall situation of bilateral relations".
"The Indian Government has clearly expressed that it will not allow the Karmapa to engage in any anti-Chinese activities, nor will it allow any foreign force to use him to engage in such activities," the Chinese Foreign Ministry said in a statement.
India cautious
The Karmapa Lama's flight across the Himalayas last year was seen by exiled Tibetans as both an embarrassment for China and a potential new irritant in relations between Delhi and Beijing.
The teenager is the only Lama of such seniority to have been recognised both by the Dalai Lama and China.
Indian officials tread very carefully over the issue of Tibet's government-in-exile, and have yet to comment on the latest decision.
The Dalai Lama's Minister for Religion and Culture has expressed pleasure at the decision, and said it would also be appreciated by the Tibetan people.
Mr Tashi Wangdi said that the Dalai Lama was also pleased and that such a decision had been expected ever since the Karmapa first arrived in India.
He said there were no plans to move him to the traditional seat of the Kagyu sect at the Rumtek monastery in the eastern Indian state of Sikkim.